By Beth Main.
Image credit: Cassadey Fedel.
In a stark contrast to this week’s news that China is going to overtake the US economy within 20 years, a different group of experts have warned that China might actually be heading for a crash due to the strain on exports caused by the rest of the world’s economic woes and China’s over eager construction fever.
The Chinese government and many economists are now expecting growth to slip below 8% this year and of course some are predicting a full on crash, just to keep things interesting.
One major problem is that China has focused too heavily on construction (making up 25% of all activity and about 15% of all jobs) which while it provided jobs reportedly left four million apartments standing empty in Beijing alone. This has caused the property market to slow and land sales to collapse.
A large proportion of the construction boom was funded by loans from state banks, still happy to lend to state owned enterprises (SOEs) at bargain rates.
Due to its stimulus spending, China’s total outstanding debt has increased by around 50 percentage points of gross domestic product over the past few years.
The Chinese economy is also over reliant on exports. Domestic consumption needs to rise from its current level of little more than one-third of GDP if it is to compensate for falling international demand. However, it is unlikely that consumption will rise while the property bubble is deflating and construction jobs are being lost. In the worst case scenario the Eurozone debt crisis and a slow economic recovery in America dampens exports further and really leaves China up shit creek.
Despite all the naysaying, the economy is still growing, albeit slowly. For one group the future is looking bright, with starting salaries for graduates expected to rise 13% in 2012.